Originally published by CMC Markets
Stocks are higher on the day as traders are a little less fearful of the political situation in Italy.
Europe
The coalition government in Rome are planning to run a budget deficit of 2.4%, but reduce it to 2% by 2021. Whenever the cost of Italian borrowing for the Italian government goes up, traders get nervous given the size of Italy’s national debt. The prospect of the two parties in Rome not being as radical as initially thought has given investors as little confidence to buy back into the market.
Tesco (LON:TSCO) shares are weaker today after the company revealed mixed first-half results. Operating profit jumped by 23.9% to £933 million, but equity analysts were anticipating £992 million. Second-quarter like-for-like (LFL) sales grew by 2.5%, which topped the forecast of 2.2% growth. It was the 11th consecutive quarter of LFL UK sales growth. The retailer is continuing to keep costs down and the interim dividend was increased by 67% on a year-on-year basis. The group has opened two low-cost ‘Jack’s’ stores which are trading ‘really well’ and the firm is on track with their plans according to Dave Lewis, the CEO. After hitting a four year high in August, the stock has been moving lower, and while it remains below its 200-day moving average at 232p, its outlook could remain negative.
Topps Tiles (LON:TPT) shares are higher today after the company said its full-year earnings would top forecasts. The company confirmed that full-year pre-tax profit would top the £15.2 billion that analysts are anticipating. Topps Tiles said the last three months trading were strong and that will be the driving force in topping the consensus estimate. The group remained cautious about the state of the UK economy. The stock gapped higher today and if it tops the 200-day moving average at 73.4p, it could target the 80p region.
Aston Martin (LON:ASTM) made its debut on the London market today, and the stock broadly traded lower. Luxury brands like Ferrari (NYSE:RACE) and Hermes (PA:HRMS) have performed well in recent years as the world’s super rich are keen to spend on top-end bands, and Aston Martin could find themselves in a similar position.
US
Stocks are rallying on the back of the strong economic indicators from the US. The Dow Jones set a new all-time high, while the S&P 500 and Nasdaq 100 are higher too.
The ADP employment report showed that 230,000 jobs were added in September, and the August report was revised higher to 168,000 from 163,000. The reading was a seven month high and underlines there is still slack in the US labour market. Traders will be looking ahead to the non-farm payrolls report on Friday, and they will be paying close attention to the earnings component of the update, as that could be the clue to what the Federal Reserve are going to do next in terms of interest rate decisions.
The ISM non-manufacturing report for September hit 61.6 – its highest reading in 21 years. The impressive report shows investors how strong the US economy is performing.
FX
EUR/USD is in the red as the US dollar continued its recent push higher. There were mixed service reports from mayor eurozone countries today and that did little to help the single currency. The service PMI reports from Italy and France were improvements on the flash readings, while the German service update showed slower growth that initially thought. The currency pair has been drifting lower since late September, and a break below the 1.1510 region could point to further losses.
GBP/USD has crept higher as the services report was largely in line with the forecast .The sector is the largest component of the British economy and the reading came in at 53.9, and the consensus estimate was 54. Prime Minister May called for party unity and appealed to the more-centrist element of the Labour party for support for her Chequers plan, and this boosted sterling sentiment too.
Commodities
Gold hasn’t moved much today and the metal is still hanging around the $1,200 mark. For the past two sessions the commodity hasn’t been pushed around by the US dollar, which is out of step with its recent form. Gold has been in a downward trend since April, and while it remains below the 50-day moving average at $1,202, the outlook could remain negative.
The oil market saw a spike in volatility on the back of the Energy Information Administration report, which showed a surge in inventories. Oil stockpiles jumped by 7.97 million barrels, whole the consensus estimate was for a build of 1.98 million barrels. Brent crude and WTI initially sold-off in the wake of the report, but rallied afterwards, and this highlights the strength of the energy market.